Reverse mortgage and inherited property

[Steve11349]

Client in herited property jointly with sibling. One paid all of the reverse mortgage balance. Can I add the amount they paid to their basis of the inhereited property? Sibling will not pay their half of the reverse mortgage pay back.

[TAXNJ]

1st would consider getting an attorney to have the other pay their obligation unless their was an agreement that one would pay in full. Would the one paying in full a “gift” or “ loan” to the other owner?

A number of unanswered questions

[BOB W]

Think of recording a lien on the property so that at future sale the lien get satisfied first and the remaining equity get distributed equally.

[Rapid Robert]

One paid all of the reverse mortgage balance. Can I add the amount they paid to their basis of the inhereited property?

I don't see why a reverse mortgage would different from a regular mortgage in this scenario. As well-known financial expert Tom Selleck likes to say over an over, "a reverse mortgage is just a loan, like any other - the difference is how you pay it back".

To actually answer your question, yes. See Pub 551. For example, if FMV at date of death of the property was $500K, and mortgage was $100K, then Sibiling #1 who paid has basis $200K + $100K = $300K, and Sibiling #2 has basis $200K.

"Assumption of mortgage. If you buy property and assume (or buy subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage."

[BOB W]

The problem here is not basis or tax issues. But that is the question asked by Steve. I see the problem much bigger, cash flow upon Sale of property.

[BOB W]

Without a working forward agreement, at sale of home closing, each brother will get a check for one half of the net proceeds. Since the one brother refused to help in the past, he will probably refuse to accept less that half of the proceeds.

Using Rapid Robert example, assuming on sale the net proceeds are $500,000. Each would receive $250,000. One brother is netting 150,000 and the other "non helping" brother is getting $250,000. What I'm suggesting is that a lien be placed on the property for the $100,000. Then the $500.000 sale would Net $400,000 to be split at $200,000. One brother would net $300,000 and the other $200,000. This forces the other brother to accept his portion ($50,000) of the Reverse Mort. balance.

[Rapid Robert]

There is also the possibility that this arrangement was fully agreed to by both siblings, with no intention for one to unfairly benefit from the other. In other words, maybe it's cooperative, not hostile (although I admit, when it comes to inheritances, it is unfortunately common for hostile relations to develop).

We don't know what the property is being used for now -- personal use? Rental? I mean, they could have sold the house and paid off the mortgage if they just wanted to cash out. Or probably the mortgage could have been re-financed.

I am not assuming that the one who paid the mortgage was so naive that they didn't realize what the ultimate consequences might be. As TaxNJ said in #2, "A number of unanswered questions"

[BOB W]

We are not getting feedback from the original poster so all is left to guesswork. I agree with RR anything is possible. But based on the question "basis" there is NO intent to be fair at closing by the non complying brother.